Singapore dodges recession on manufacturing growth, warns of bumpy recovery

• Singapore's economy grew at 1.4% quarter on quarter in the second quarter of 2025, a reversal from the 0.5% contraction seen in the first quarter
• The GDP growth was led by the manufacturing sector, which expanded 5.5% year over year.
• The data also comes ahead of a monetary policy decision by the country's central bank later in July.

Singapore's economy grew at 1.4% in the second quarter of 2025, avoiding a technical recession as it reversed the 0.5% contraction recorded in the first three months of the year.

On a year-over-year basis, the country's economy expanded 4.3% in the second quarter of 2025, accelerating from 4.1% in the first three months and beating expectations. A Reuters poll of economists had forecasted a 3.5% growth.

A technical recession is commonly defined as two consecutive quarter-over-quarter declines in a country's GDP. Analysts polled by Reuters had estimated a 0.6% quarter-over-quarter growth.

The GDP growth was led by the manufacturing sector, which expanded 5.5% year over year, up from 4.4% in the first quarter of 2025. The sector makes up about 17% of the country's economy.

Song Seng Wun, economic advisor at CGS International, attributed the reversal in GDP growth to the pause on “reciprocal tariffs” till Aug. 1, which were announced at the start of April.

While businesses were rushing their orders in the first quarter to get ahead of the “Liberation Day” tariffs, Song told CNBC, they might have chosen to front-load even more exports, “just in case the tariff [pause] were not extended.”

Shivaan Tandon, markets economist at Capital Economics, made a similar observation about Singapore benefiting from front-loading. However, he expects this boost to fade, and “Singapore's export-oriented services sector will drop back and manufacturing activity will continue to struggle.”

Besides the front-loading of exports, Singapore's economy also benefited from the de-escalation in the U.S.-China tariff war, falling interest rates and a construction boom, said Chua Hak Bin, economist at Maybank Investment Banking Group

The construction sector expanded 4.4% in the second quarter, a reversal from the 1.8% contraction in the first three months of the year.

'Uncertainty' still ahead

Despite the GDP beat, Singapore's Ministry of Trade and Industry said in its release that “there remains significant uncertainty and downside risks in the global economy in the second half of 2025 given the lack of clarity over the tariff policies of the U.S.”

Back in April, MTI had downgraded the country's GDP growth to 0%-2% for 2025, down from its previous forecast of 1%-3%. Singapore recorded a full-year GDP growth figure of 4.4% in 2024.

Unlike other countries in Southeast Asia that have been hit with “tariff letters,” Singapore has not received such a “letter” from U.S. President Donald Trump.

However, Singapore still faces the baseline 10% tariff from the U.S., despite running a trade deficit with the U.S. and having a free trade agreement since 2004.

CGS' Song said that Singapore's latest GDP growth rate, along with other encouraging signs in the economy, suggested “some upside surprise to the latest MTI forecast of 0%-2%.”

Despite that, he cautioned that the trade environment remains very volatile, and that the ministry will not be “in a rush” to revise their forecasts just yet.

“Any drag on global trade as a result of tariffs and other barriers, will negatively impact Singapore, [to what] extent we don't know. It's hard to calculate, because it can be product by product sector or very country specific.”

Capital Economics's Tandon expects Singapore's economy to slow in the second half of the year.

“With growth set to weaken and inflation likely to remain very low, we think the case for further monetary loosening from the central bank remains firmly intact,” Tandon added.

Maybank's Chua was more optimistic, forecasting GDP growth of 2.4% in 2025, above MTI estimates.

“There will likely be upgrades to market and official growth forecasts,” he said, adding that the bank expects some “modest slowdown in regional trade activities, but not a contraction in the second half.”

The Singapore government announced last week the rollout of grants to help businesses cope with the impact of global trade tensions.

The GDP release also comes ahead of a monetary policy decision by the country's central bank later in July.

In its May meeting, the Monetary Authority of Singapore loosened its policy for a second straight time, saying that “there are downside risks to Singapore's economic outlook stemming from episodes of financial market volatility and a sharper-than-expected fall in final demand abroad.”

The MAS also warned that a more abrupt or persistent weakening in global trade will have a significant impact on Singapore's trade-related sectors and, in turn, the broader economy.

Nonetheless, the country's inflation numbers are supportive of a rate cut.

Singapore's headline inflation rate fell to 0.8% in May, its lowest level since February 2021, while core inflation, which excludes accommodation and private transport, came in at 0.6% in May, compared to 0.7% the month before.